Brenda Hamilton

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    • Title:Attorney, Legal Writer
    • Organization:Hamilton and Associates Law Group
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    What is a Direct Public Offering? Going Public Attorneys

    Tuesday, August 7, 2018, 3:18 PM [General]
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    Most  private companies are unable to locate an underwriter prior to going public.  A direct public offering (“Direct Public Offering”) provides a viable solution to this dilemma. A Direct Public Offering allows a company to sell its shares directly to investors without the use of an underwriter. With a Direct Public Offering, the company files a registration statement with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).

    Typically, in going public transaction Form S-1 (”S-1”) registration statements are used.

    A company can use a Form S-1 registration statement to register securities on its own behalf in an initial public offering, register securities on behalf of its selling security holders in a secondary offering or register securities on its own behalf as well as for selling security holders.

    Using a Direct Public Offering to Go Public

    All issuers qualify to file a registration statement on Form S-1 and it is the most common registration statement form used in going public transactions.  Filing a registration statement in connection with a going public transaction eliminates many of the risks and expenses associated with reverse mergers including among other things, undisclosed liabilities, sketchy corporate records, DTC Chills, Global Locks and SEC trading suspensions.

    SEC Review of Registration Statements in Direct Public Offerings & Going Public Transactions

    For public companies and private companies going public, an SEC review of the Form S-1 registration statement is common.  Upon review, the SEC may render comments which the company must address by filing amendments to its registration statement. When all of the SEC comments have been answered to the satisfaction of the SEC, it will declare the registration statement effective.

    Additional Steps of Going Public in Direct Public Offerings

    Filing an S-1 registration statement under any of the above scenarios will not complete the going public transaction.  A registration statement alone does not cause an issuer’s securities to become publicly traded and it will not result in the assignment of a ticker symbol.  The registration statement will cause the company to become subject to the SEC’s reporting requirements.  After satisfying the SEC’s requirements, the issuer must comply with the requirements of the Financial Industry Regulatory Authority (“FINRA”) to obtain its ticker symbol.

     The Last Step for Issuers Going Public – Getting a Ticker Symbol

    Generally, FINRA requires that the issuer have at least 25 shareholders who hold either registered shares or with respect to Pink Sheet listed issuers, shares that have been held by non-affiliate investors for twelve months.  The majority of the 25 holders should have paid cash consideration for their shares.

    Float Requirements in Going Public Transactions

    In order to obtain a ticker symbol, a company must meet FINRA’s public float requirements.  The company’s outstanding shares held by its non-affiliates in the aggregate should represent at least 10% of the issuer’s outstanding securities.  These shares become what is often referred to as the “Float.”  The Float must also be somewhat evenly distributed without significant concentration in one or a few shareholders.  These shares should be unrestricted securities either because the shares were registered with the SEC or exempt from registration.

    Sponsoring Market Maker & Form 211

    FINRA requires companies to locate a sponsoring market maker to submit a Form 211 (“211”), on its behalf.  Upon the sponsoring market maker filing a 211, FINRA will conduct a review and provide comments to the sponsoring market maker which the company and its securities attorney must address.  Upon receipt of confirmation that all comments have been answered satisfactorily, a ticker symbol is assigned and the company’s securities are publicly traded.

    By undertaking a Direct Public Offering, the issuer avoids many of the expenses and risks associated with reverse merger transactions including incomplete and sloppy records, pending lawsuits and other liabilities including securities violations.  For a company seeking public company status a direct public offering using a registration statement filing with the SEC offers a cost and time effective solution.

    For further information about direct public offerings, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit www.gopublic101.com.  This memorandum about direct public offerings is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship.  For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or by email a info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.

    Hamilton & Associates | Securities Lawyers
    Brenda Hamilton, Securities Attorney

    101 Plaza Real South, Suite 201 South
    Boca Raton, Florida 33432 
    Telephone: (561) 416-8956
    Facsimile: (561) 416-2855 
    www.SecuritiesLawyer101.com

    Direct Public Offering Toolbox l By: Brenda Hamilton Attorney

    Tuesday, August 7, 2018, 3:16 PM [General]
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    Securities Lawyer 101 Blog

    For companies with a reasonable time schedule for going public, a direct public offeringprovides an appealing method for obtaining public company status.  In a direct public offering, a company’s shares are sold directly to investors by management, rather than through an underwriter.  

    A primary benefit of a direct public offering is that the process  dramatically reduces the costs and risks associated with reverse merger transaction.  Companies using a direct public offering in their going public transaction should consider these useful tools to ensure a smooth transaction.

    Shareholder Requirements in Direct Public Offerings.

    The Financial Industry Regulatory Authority (“FINRA”) requires that a company’s securities develop an orderly and liquid market.  To meet this requirement you must have a shareholder base of at least 20 non-affiliated stockholders who have somewhat evenly distributed share ownership.  For example, if a large portion of a company’s free trading shares is concentrated in only a handful of shareholders, FINRA will not likely assign a ticker symbol.

    Concentration of the public float is a red flag that often results in one or a few stockholders manipulating that market.

    Financial Statements Requirements in Direct Public Offerings.

    direct public offering includes the filing of a registration statement with the SEC.  The issuer must include audited financial statements its two preceding fiscal years or shorter period that it has been in existence.  As soon as a decision has been made to go public, the company’s accountant should begin the process of preparing its financial statements and the company should elect its auditor who must be registered with the Public Company Oversight Accounting Board.  The Company’s accountant should provide GAAP-compliant financial statements and the footnotes to those financial statements to the Company’s auditor.  The auditor must audit those financial statements and prepare an independent opinion on whether or not the financial statements are accurate, complete, and fairly present the company’s financial condition.  The auditor is prohibited from preparing the financial statements for the issuer whose financial statements it audits.

    Operational Activity in Direct Public Offerings.

    FINRA frequently questions whether a company is a shell during the Form 211 comment process. This is particularly true for companies that do not have meaningful revenues.  The OTC Markets remains a ripe playing field for fraudsters setting up shells for reverse merger transactions.  As such, when FINRA sees a company that looks like it is being set up as a shell, it will render comments and you should be prepared to prove that the company has a legitimate plan of operations. Prior to FINRA allowing a market maker to submit quotations, an issuer should ensure that it is prepared to provide proof to FINRA that it is not a shell company.

    Transfer Agents in Direct Public Offerings.

    A transfer agent is the record keeper of the company’s shareholder records, including issuances, purchases, sales, transfers and account balances.  As a company’s shareholder list increases, it becomes critical to hire a reputable transfer agent to maintain its records.

    Sponsoring Market Makers in Direct Public Offerings.  

    To initiate quotations of a company’s securities in the OTC Markets, a sponsoring market maker must submit a Form 211 application to FINRA.  Market makers are prohibited from being compensated to submit a Form 211 to FINRA.  Rule 15c2-11(a)(5) of the Securities Exchange Act of 1934, as amended requires that sponsoring market makers perform sufficient due diligence before submitting a Form 211 to FINRA.

    The due diligence often includes copies of subscription agreements for each stockholder and the front and back of checks evidencing payment.  Some may require copies of driver licenses, questionnaires and other materials. As such, companies should keep meticulous records of all offerings conducted.

    Hire a Law Firm and Not a Going Public Consultant or Service.  

    The direct public offering process is subject to expansive regulation and involves drafting and filing a registration statement with the SEC & responding to comments until the registration statement is declared effective, and drafting and filing post-effective amendments if required.   Many companies are exposed to unnecessary risk when they hire non-lawyers to prepare their SEC filings. Companies should avoid consultants who claim to work with securities lawyers and auditors.   In many instances these consultants collect a going public fee that includes compensated an auditor and the company’s securities lawyer. These types of arrangements create a myriad of ethical and independence issues for both the lawyer and auditor involved.

    Companies should engage a competent, experienced securities attorney who can provide references from clients about their services.

    For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit  www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

    Hamilton & Associates | Securities Lawyers
    Brenda Hamilton, Securities Attorney
    101 Plaza Real South, Suite 202 North
    Boca Raton, Florida 33432
    Telephone: (561) 416-8956
    Facsimile: (561) 416-2855
    www.SecuritiesLawyer101.com

    Regulation A+ Lawyers – Regulation A+ White Paper

    Friday, August 3, 2018, 3:22 PM [General]
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    Overview of the Regulation A+ Exemption

    On March 25, 2015, the Securities and Exchange Commission (the “SEC”) adopted final rules to implement Section 401 of the Jumpstart Our Business Startups (JOBS) Act by expanding Regulation A into two tiers. These changes have had a notable impact on companies going public. One key benefit of Regulation A+ is that companies using Regulation A+ can comply with scaled down SEC reporting obligations.

    Tier 1 of Regulation A+ provides an exemption for securities offerings of up to $20 million in a 12-month period while Tier 2 provides an exemption for securities offerings of up to $50 million in a 12-month period. An issuer of $20 million or less of securities in its offering can elect to proceed under either Tier 1 or Tier 2.

    Tier 1 and Tier 2 of Regulation A+ includes some of the existing provisions of Regulation A concerning issuer eligibility, offering circular disclosures, testing the waters, and “bad actor” disqualification. Regulation A+ modernizes and streamlines the Regulation A securities offering filing process. Regulation A+ includes some characteristics of registered offerings and provides flexibility for issuers in the going public and securities offering process. The exemption also provides for an ongoing reporting regime for certain issuers increasing transparency for investors.

    Under Regulation A+, Tier 2 issuers are required to include audited financial statements in their offering documents and to file annual, semiannual, and current reports with the SEC on an ongoing basis. With the exception of securities that will be listed on a national securities exchange upon qualification, purchasers in Tier 2 offerings must either be accredited investors, as defined in Rule 501(a) of Regulation D, or be subject to certain limitations on their investment. The requirements for Tier 1 and Tier 2 offerings are described more fully below.

    Since its effectiveness, Regulation A+ has gained notable market acceptance. Companies using the Regulation A+ exemption have listed on the New York Stock Exchange (NYSE) and NASDAQ stock markets as well as the OTC Markets.

    2. Eligible Issuers and Securities Under Regulation A+

    Regulation A+ is available only to companies organized in and with their principal place of business in the United States or Canada. Regulation A+ is not available to:

    • companies subject to the ongoing reporting requirements of Section 13 or 15(d) of the Exchange Act;
    • companies registered or required to be registered under the Investment Company Act of 1940 and BDCs;
    • development stage companies that have no specific business plan or purpose or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies (often referred to as, “blank check companies”);
    • issuers of fractional undivided interests in oil or gas rights, or similar interests in other mineral rights;
    • issuers that are required to, but that have not, filed with the SEC the ongoing reports required by the rules under Regulation A during the two years immediately preceding the filing of a new offering statement (or for such shorter period that the issuer was required to file such reports);
    • issuers that are or have been subject to an order by the SEC denying, suspending, or revoking the registration of a class of securities pursuant to Section 12(j) of the Exchange Act that was entered within five years before the filing of the offering statement; and
    • issuers subject to “bad actor” disqualification under Rule 262.

    Regulation A+ limits the type of securities that can be issued to the specifically enumerated list in Section 3(b)(3) of the Securities Act, which includes warrants and convertible equity and debt securities, among other equity and debt securities.  Asset-backed securities are ineligible under Regulation A+.

    3. Offering Limitations and Secondary Sales Under Regulation A+

    Issuers can conduct a Regulation A+ offering using either Tier 1 or Tier 2. Tier 1 is available for offerings of up to $20 million in a 12-month period, including no more than $6 million on behalf of selling securityholders that are affiliates of the issuer.

    Tier 2 is available for offerings of up to $50 million in a 12-month period, including no more than $15 million on behalf of selling securityholders that are affiliates of the issuer. Additionally, sales by all selling securityholders in a Regulation A+ offering are limited to no more than 30% of the aggregate offering price in an issuer’s first Regulation A+ offering and any subsequent Regulation A+ offerings in the following 12-month period.

    4. Investment Limitations

    Regulation A+ limits the amount of securities that an investor who is not an accredited investor under Rule 501(a) of Regulation D can purchase in a Tier 2 offering to no more than: (a) 10% of the greater of annual income or net worth (for natural persons); or (b) 10% of the greater of annual revenue or net assets at fiscal year-end (for non-natural persons). This limit does not, however, apply to purchases of securities that will be listed on a national securities exchange upon qualification of the Regulation A+ Offering.

    5. Integration and Regulation A+ Offerings

    The integration doctrine provides an analytical framework for determining whether multiple securities offerings should be treated as the same offering. This helps to determine whether registration under Section 5 of the Securities Act is required or an exemption is available for the entire offering.

    Generally, the determination as to whether particular securities offerings should be integrated into a single offering is based upon the specific facts and circumstances.

    Regulation A+ provides that offerings conducted pursuant to Regulation A+ will not be integrated with:

    • prior offers or sales of securities; or
    • subsequent offers or sales of securities that are:
      • registered under the Securities Act, except as provided in Rule 255(c);
      • made pursuant to Rule 701 under the Securities Act;
      • made pursuant to an employee benefit plan;
      • made pursuant to Regulation S;
      • made pursuant to Section 4(a)(6) of the Securities Act; or
      • made more than six months after completion of the Regulation A+ offering.

    6. Treatment of Regulation A+ under Section 12(g)

    Section 12(g) of the Securities Exchange Act of 1934 requires, among other things, that an issuer with total assets exceeding $10,000,000 and a class of equity securities held of record by either 2,000 persons, or 500 persons who are not accredited investors, register such class of securities with the SEC. Regulation A+, however, conditionally exempts securities issued in a Tier 2 offering from the mandatory registration provisions of Section 12(g) for so long as the issuer remains subject to and is current in (as of its fiscal year end), its Regulation A+ periodic reporting obligations.

    In order for the conditional exemption to apply, issuers in Tier 2 offerings are required to engage the services of a transfer agent registered with the SEC pursuant to Section 17A of the Exchange Act. The final rules also provide that the conditional exemption from Section 12(g) is only available to companies that meet size-based requirements similar to those contained in the “smaller reporting company” definition under Securities Act and Exchange Act rules. An issuer that exceeds the size-based requirements is granted a two-year transition period before it would be required to register its class of securities pursuant to Section 12(g), provided it timely files all ongoing reports due during such period.

    7. The Form 1-A Regulation A+ Offering Statement

    All issuers that conduct offerings pursuant to Regulation A+ must electronically file an offering statement on Form 1-A on the SEC’s Electronic Data Gathering, Analysis and Retrieval system (EDGAR).

    The Form 1-A Offering Statement consists of three parts:

    • Part I: an eXtensible Markup Language (XML) based fillable form;
    • Part II: a text file attachment containing the body of the disclosure document and financial statements; and
    • Part III: text file attachments, containing the signatures, exhibits index, and the exhibits to the offering statement.

    A. Part I of Form 1-A

    Part I of Form 1-A requires certain basic information about the issuer and the proposed offering. The notification in Part I of Form 1-A requires the following:

    • Item 1. Issuer Information. Item 1 requires information about the issuer’s identity, industry, number of employees, financial statements and capital structure, as well as contact information.
    • Item 2. Issuer Eligibility. Item 2 requires the issuer to certify that it meets various issuer eligibility criteria.
    • Item 3. Application of Rule 262. Item 3 requires the issuer to certify that no disqualifying events have occurred and to indicate whether related disclosure will be included in the offering circular.
    • Item 4. Summary Information Regarding the Offering and other Current or Proposed Offerings. Item 4 contains indicator boxes or buttons and text boxes eliciting information about the offering.
    • Item 5. Jurisdictions in Which Securities are to be Offered. Item 5 requires information about the jurisdiction in which the securities will be offered.
    • Item 6. Unregistered Securities Issued or Sold Within One Year. Item 6 requires disclosure about unregistered issuances or sales of securities within the last year.

    B. Part II of Form 1-A

    Part II of Form 1-A contains the disclosure document that the issuer will provide in connection with its Regulation A+ offering. This section is also referred to as the “offering circular.” Issuers are required to provide financial disclosure in Part II that follows the requirements of Part F/S of Form 1-A, while they have the option to prepare narrative disclosure that follows one of two different formats.

    i. Offering Circular Format in Regulation A+ Offerings

    The Offering Circular requires scaled down disclosure in comparison to that required by issuers in registered offerings such as Form S-1. The Offering Circular format is meant to simplify the process by which an issuer prepares its narrative disclosure by limiting the need for issuers to look outside the form for disclosure guidance.

    ii. Part I of Form S-11 Formats in Regulation A+ Offerings

    Part I of Form S-1 and Part I of Form S-11 contain the narrative disclosure requirements for registration statements filed by issuers in registered offerings. In addition to the Offering Circular format, issuers may provide narrative disclosure in Part II of Form 1-A that follows the requirements of Part I of Form S-1 or, in certain circumstances, Part I of Form S-11. While Form S-1 is generally available for all types of issuers and transactions, Form S-11 is only available for offerings of securities issued by (i) real estate investment trusts, or (ii) issuers whose business is primarily that of acquiring and holding for investment real estate or interests in real estate or interests in other issuers whose business is primarily that of acquiring and holding real estate or interest in real estate for investment. Part I of both Form S-1 and Form S-11 generally describes narrative disclosure requirements by cross-reference to the item requirements of Regulation S-K.

    iii. Financial Statements in Regulation A+ Offerings

    Part II of Form 1-A requires issuers to provide financial statements that comply with the requirements of Part F/S. Part F/S requires issuers in both Tier 1 and Tier 2 offerings to file balance sheets and related financial statements for the two previous fiscal year ends (or for such shorter time that they have been in existence). For Tier 1 offerings, issuers are not required to provide audited financial statements unless the issuer has already prepared them for other purposes. Issuers in Tier 2 offerings are required to include financial statements in their offering circulars that are audited in accordance with either the auditing standards of the American Institute of Certified Public Accountants (AICPA) (referred to as U.S. Generally Accepted Auditing Standards or GAAS) or the standards of the Public Company Accounting Oversight Board (PCAOB). Part F/S requires issuers in both Tier 1 and Tier 2 offerings to include financial statements in Form 1-A that are dated not more than nine months before the date of non-public submission, filing, or qualification, with the most recent annual or interim balance sheet not older than nine months. If interim financial statements are required, they must cover a period of at least six months.

    C. Part III of Regulation A+ Form 1-A

    Part III of Form 1-A requires issuers to file certain documents as exhibits to the offering statement. Issuers are required to file certain exhibits with the offering statement including its underwriting agreement; charter and by-laws; instrument defining the rights of securityholders; subscription agreement; voting trust agreement; material contracts; plan of acquisition, reorganization, arrangement, liquidation, or succession; escrow

    agreements; consents; opinion regarding legality; “testing the waters” materials; appointment of agent for service of process; materials related to non-public submissions; and any additional exhibits the issuer may wish to file.

    D. Non-Public Submission of Draft Offering Statements in Regulation A+ Offerings

    Issuers whose securities have not been previously sold pursuant to a qualified offering statement under Regulation A+ or an effective registration statement under the Securities Act such as Form S-1 may submit a draft offering statement for non-public review by the SEC.

    Consistent with the treatment of draft registration statements in registered offerings, a non-publicly submitted offering statement must be substantially complete upon submission in order for staff of the SEC’s Division of Corporation Finance to begin its review. All non-public submissions of draft offering statements must be submitted electronically via EDGAR, and the initial non-public submission, all non-public amendments thereto, and correspondence submitted by or on behalf of the issuer to the SEC staff regarding such submissions must be publicly filed and available on EDGAR not less than 21 calendar days before qualification of the offering statement.

    E. Qualification of Regulation A+ Offerings

    Issuers may commence selling securities pursuant to Regulation A+ once the offering statement has been qualified by the SEC.  The SEC’s Division of Corporation Finance has delegated authority to declare offering statements qualified by a “notice of qualification,” which is analogous to a notice of effectiveness in registered offerings on Form S-1.

    8. Solicitation of Interest Materials in Regulation A+ Offerings

    Issuers are permitted to “test the waters” with, or solicit interest in a potential Regulation A+ offering from, the general public either before or after the filing of the offering statement, provided that all solicitation materials include the legends required by the final rules and, after publicly filing the offering statement, are preceded or accompanied by a preliminary offering circular or contain a notice informing potential investors where and how the most current preliminary offering circular can be obtained.

    9.  Ongoing Reporting in Regulation A+ Offerings

    An Issuer in a Tier 1 offering must provide information about sales in its offering and to update certain issuer information by electronically filing a Form 1-Z exit report with the SEC no later than 30 calendar days after termination or completion of the offering. An Issuer in a Tier 2 offering must electronically file annual and semiannual reports, as well as current reports and, in certain circumstances, an exit report on Form 1-Z, on EDGAR.

    A. Annual Report on Form 1-K (Tier 2 Issuers in Regulation A+ Offerings Only)

    Issuers in Tier 2 offerings are required to electronically file annual reports with the SEC on the EDGAR database on Form 1-K within 120 calendar days after the issuer’s fiscal year end.

    Regulation A+ Form 1-K requires issuers to update certain information previously filed with the SEC pursuant to Part I of Form 1-A, as well as to provide disclosure relating to the issuer’s business operations for the preceding three fiscal years (or, if in existence for less than three years, since inception), related party transactions, beneficial ownership of the issuer’s securities, executive officers and directors, including certain executive compensation information, management’s discussion and analysis (MD&A) of the issuer’s liquidity, capital resources, and results of operations, and two years of audited financial statements.

    B. Semiannual Report on Form 1-SA (Tier 2 Issuers in Regulation A+ Offerings Only)

    Issuers in Tier 2 offerings are required to electronically file semiannual reports with the SEC on EDGAR on Form 1-SA within 90 calendar days after the end of the first six months of the issuer’s fiscal year. Form 1-SA requires issuers to provide disclosure primarily relating to the issuer’s interim financial statements and MD&A.

    C. Current Report on Form 1-U (Tier 2 Regulation A+ Issuers Only)

    Issuers in Tier 2 offerings are required to electronically file current reports with the SEC on EDGAR on Form 1-U within four business days of the occurrence of one (or more) of the following events:

    • Fundamental changes;
    • Bankruptcy or receivership;
    • Material modification to the rights of securityholders;
    • Changes in the issuer’s certifying accountant;
    • Non-reliance on previous financial statements or a related audit report or completed interim review;
    • Changes in control of the issuer;
    • Departure of the principal executive officer, principal financial officer, or principal accounting officer; and
    • Unregistered sales of 10% or more of outstanding equity securities.

    D. Exit Report on Form 1-Z (Tier 1 and Tier 2 Regulation A+ Issuers)

    Issuers in Tier 1 offerings are required to electronically file with the SEC on EDGAR certain summary information on terminated or completed Regulation A+ offerings in an exit report on Part I of Form 1-Z not later than 30 calendar days after termination or completion of an offering. Issuers conducting Tier 2 offerings are required to provide this information in Part I of Form 1-Z, if such information was not previously provided on Form 1-K as part of their annual report, at the time of filing information in response to Part II of Form 1-Z.

    Issuers in Tier 2 offerings that have filed all ongoing reports required by Regulation A+ for the shorter of (1) the period since the issuer became subject to such reporting obligation or (2) its most recent three fiscal years and the portion of the current year preceding the date of filing Form 1-Z may immediately suspend their ongoing reporting obligations under Regulation A+ at any time after completing reporting for the fiscal year in which the offering statement was qualified, if the securities of each class to which the offering statement relates are held of record by fewer than 300 persons and offers or sales made in reliance on a qualified Tier 2 offering statement are not ongoing.

    In these circumstances, an issuer’s obligation to continue to file ongoing reports in a Tier 2 offering under Regulation A+ would be suspended immediately upon the electronic filing of a notice with the SEC on Part II of Form 1-Z.

    10. Bad Actor Disqualification in Regulation A+ Offerings

    The “bad actor” disqualification provisions contained in Rule 262 of Regulation A+ disqualify securities offerings from reliance on Regulation A+ if the issuer or other relevant persons (such as underwriters, placement agents, and the directors, officers and significant shareholders of the issuer) (collectively, “covered persons”) have experienced a disqualifying event, such as being convicted of, or subject to court or administrative sanctions for, securities fraud or other violations of specified laws.

    A. Covered Persons – Disqualification in Regulation A+ Offerings

    Understanding the categories of persons that are covered by Rule 262 is important because issuers are required to conduct a factual inquiry to determine whether any covered person has had a disqualifying event, and the existence of such an event will generally disqualify the offering from reliance on Regulation A+.

    “Covered persons” include:

    • the issuer, including its predecessors and affiliated issuers
    • directors, general partners, and managing members of the issuer
    • executive officers of the issuer, and other officers of the issuers that participate in the offering
    • 20 percent beneficial owners of the issuer, calculated on the basis of voting power
    • promoters connected with the issuer in any capacity
    • persons compensated for soliciting investors, including their directors, executive officers or other officers participating in the offerings, general partners and managing members

    B. Disqualifying Events in Regulation A+ Offerings

    Under the final rule, disqualifying events include:

    • Certain criminal convictions
    • Certain court injunctions and restraining orders
    • Certain final orders of certain state and federal regulators
    • Certain SEC disciplinary orders
    • Certain SEC cease-and-desist orders
    • Suspension or expulsion from membership in a self-regulatory organization (SRO), such as FINRA, or from association with an SRO member
    • SEC stop orders and orders suspending the Regulation A+ exemption
    • S. Postal Service false representation orders

    Many disqualifying events include a look-back period (for example, a court injunction that was issued within the last five years or a regulatory order that was issued within the last ten years). The look-back period is measured from the date of the disqualifying event—for example, the issuance of the injunction or regulatory order and not the date of the underlying conduct that led to the disqualifying event—to the date of the filing of an offering statement.

    C. Reasonable Care Exception to Regulation A+ Disqualification Rules

    Regulation A+ provides an exception from disqualification when the issuer is able to demonstrate that it did not know and, in the exercise of reasonable care, could not have known that a covered person with a disqualifying event participated in the offering.

    The steps an issuer should take to exercise reasonable care will vary according to particular facts and circumstances. A note to the rule states that an issuer will not be able to establish that it has exercised reasonable care unless it has made, in light of the circumstances, factual inquiry into whether any disqualification exists.

    D. Other Exceptions to Regulation A+ Disqualification

    Disqualification will not arise if, before the filing of the offering statement, the court or regulatory authority that entered the relevant order, judgment or decree advises in writing—whether in the relevant judgment, order or decree or separately to the SEC or its staff—that disqualification under Regulation A+ should not arise as a consequence of such order, judgment or decree.

    E. Waivers for Regulation A+ Disqualification

    i. Waiver for good cause shown

    The final rule provides for the ability to seek waivers from disqualification by the SEC upon a showing of good cause that it is not necessary under the circumstances that the exemption be denied. The SEC has identified several circumstances that could, depending upon the specific facts, be relevant to the evaluation of a waiver request for good cause shown. These can be viewed at:

    11. State Securities Laws & Regulation A+ Offerings A. Regulation A+ Tier 1 Offerings

    In addition to qualifying a Regulation A+ offering with the SEC, issuers in Tier 1 offerings must register or qualify their offering in any state in which they seek to offer or sell securities pursuant to Regulation A+.

    Issuers wishing to obtain information on state-specific registration requirements should contact state securities regulators in the states in which they intend to offer or sell securities for further guidance on compliance with state law requirements. Issuers may also obtain useful information on state securities law registration and qualification requirements, including the option to have Tier 1 offerings that will be conducted in multiple states reviewed pursuant to a coordinated state review program, by visiting the website of the North American Securities Administrators Association (NASAA) at www.nasaa.org .

    B. Regulation A+ Tier 2 Offerings

    While issuers in Tier 2 offerings are required to qualify offerings with the SEC before sales can be made pursuant to Regulation A+, they are not required to register or qualify their offerings with state securities regulators, Tier 2 offerings by such issuers, however, remain subject to state law enforcement and antifraud authority.

    Issuers in Regulation A+ Tier 2 offerings may be subject to filing fees in the states in which they intend to offer or sell securities and be required to file with such states any materials that the issuer has filed with the SEC as part of the offering.

    The failure to file, or pay filing fees regarding, any such materials may cause state securities regulators to suspend the offer or sale of securities within their jurisdiction. Issuers should contact state securities regulators in the states in which they intend to offer or sell securities for further guidance on compliance with state law requirements.

    For more information about going public and Regulation A+, securities law or our other services please contact Hamilton & Associates Law Group, P.A. 01 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956 or by email at info@securitieslawyer101.com. &... This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes. Hamilton & Associates Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the NASDAQ Stock Market, the NYSE MKT or over-the-counter market, such as the OTC Pink, OTCQB and OTCQX. For two decades the Firm has served private and public companies and other market participants in corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation ARegulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, Form F-1,  Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements,  reporting on Forms 10-QForm 10-K and Form 8-KForm 6-K and SEC Schedule 14CInformation and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and the New York Stock Exchange (NYSE) and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as SEC, FINRA and DTC for Rule 15c2-11.

    OTC Markets OTCQB, OTCQX, OTC Pink Quotation, Listing and Disclosure

    Friday, August 3, 2018, 3:20 PM [General]
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    Public companies with shares traded on OTC Markets OTC Link® ATS are organized into three unique market places. In part, the trading market depends upon whether the issuer is required to comply with the SEC Reporting Requirements. The OTC Markets provides venues for both domestic and foreign issuers and provides a unique platform for foreign issuers seeking to dual listing their securities. The OTCQX Best Market is for established, global, and growth companies. OTC Markets OTCQX companies must meet high financial standards, follow best practice corporate governance, demonstrate compliance with U.S. securities laws, and have a professional third-party sponsor. The OTCQB Venture Market is for entrepreneurial and development stage companies that are not yet able to qualify for OTCQX. OTCQB companies must be current in their SEC reporting requirements and must undergo an annual verification and management certification process.

    The OTC Markets OTC Pink Open Market is for broker-dealers to trade all types of securities without requiring company involvement.

    In contrast to securities listed on U.S. stock exchanges, securities on the OTCQX, OTCQB and Pink markets may trade without filing a registration statement with the SEC if they meet certain disclosure and other requirements.

    Companies traded on the OTCQX, OTCQB and Pink markets follow one of the following reporting standards:

    The OTC Markets International Reporting Standard

    Rule 12g3-2(b) under the Securities Exchange Act (‘Rule 12g3-2(b)’) permits non-U.S. companies with securities listed primarily on a Qualified Foreign Exchange to make publicly available to U.S investors in English the same information that is made publicly available in their home countries as an alternative to the SEC’s reporting requirements. The OTC markets publishes a list of Qualified Foreign Exchanges. 

    The OTC Markets SEC Reporting Standard

    Companies that are subject to the SEC Reporting Requirements that are in compliance with these requirements qualify to list based upon SEC Reporting Standard.

    The OTC Markets Regulation A Reporting Standard

    The OTC Markets recognizes the reporting obligations for companies under Tier 2 of Regulation A under the Securities Act. Companies subject to the reporting obligations under Tier 2 of Regulation A must continue to file, on an ongoing basis, all annual, semi-annual and other interim reports required by the rule. Audited annual financial statements must be prepared in accordance with the requirements of Regulation A. Additional disclosure obligations, like quarterly filings and annual certifications must be posted on the OTC Markets website, in order to comply with the eligibility requirements of the OTCQX and OTCQB Markets.

    The OTC Markets U.S. Bank Reporting Standard

    Banks without SEC-registered securities must follow the disclosure guidelines outlined in the OTCQX Rules for U.S. Banks. Banks are also required to release any news or information which might reasonably be expected to materially affect the market for its securities in a timely manner. Banks with SEC-registered securities must be current in required reporting with the SEC.

    The OTC Markets Alternative Reporting Standard

    OTC Markets Group offers the Alternative Reporting Standard for companies who choose to make material information publicly available to investors. Public companies must generally make information publicly available pursuant to Federal securities laws, including Rule 10b-5 under the Exchange Act and pursuant Rule 144(c)(2) under the Securities Act even if the issuer is not subject to the SEC’s reporting requirements.

    OTCQX and OTCQB companies incorporated in the U.S. that are not subject to SEC reporting requirements, U.S. Banking Regulators or Qualified Foreign Exchanges are permitted to follow the Alternative Reporting Standard. This allows companies to provide disclosure pursuant to the OTC Markets Alternative Reporting Standard Disclosure Guidelines for OTCQX and OTCQB. Investors may view these disclosures at otcmarkets.com. OTCQX companies are also subject to the eligibility requirements and terms of the OTCQX Rules for U.S. Companies and OTCQB companies are subject to OTCQB Standards. Companies provide detailed line item disclosures and other “material” information to enable investors to make an informed investment decision.

    OTC Pink companies not subject to SEC Reporting Requirements, U.S. Banking Regulators or a Qualified Foreign Exchange may publish disclosure in accordance with the OTC Pink Basic Disclosure Guidelines. These requirements are designed to give an investor the basic information a broker-dealer must maintain under Exchange Act Rule 15c2-11 in order to initiate a quote in a security on the Pink markets. The Alternative Reporting Standard is available both to U.S. and to international OTC Pink companies.

    OTCQX, OTCQB and OTC Pink Market Financial Reporting

    Many companies listed on the OTC Markets are not subject to SEC reporting requirements. As a result, these issuers do not filing periodic reports or financial information and other material information with the SEC.  The OTC Markets provides a venue for these companies to provide material information to investors.

    Reporting of Corporate Actions to FINRA

    SEC Rule 10b-17 requires all OTCQX, OTCQB and OTC Pink companies to provide timely notice to FINRA of certain corporate actions, including dividends, stock splits, reverse splits, name changes, mergers, acquisitions, dissolutions, bankruptcies or liquidations, at least 10 days prior to the record date. Companies who fail to report such corporate actions in the required time may be subject to fines up to $5,000. For more information, see FINRA’s Notice to Member 10-38.

    For more information about going public, securities law or our other services please contact a Securities Attorney at Hamilton & Associates Law Group, P.A. 01 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956 or by email at info@securitieslawyer101.com. &... This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

    Hamilton & Associates Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the Frankfurt Stock Exchange, London Stock Exchange, NASDAQ Stock Market, the NYSE MKT and OTC Markets. For two decades the Firm has served private and public companies and other market participants in corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation ARegulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1Form F-1,  Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements, reporting on Forms 10-QForm 10-K and Form 8-KForm 6-K and SEC Schedule 14CInformation and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and NYSE MKT and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as FINRA and DTC for Rule 15c2-11 / Form 211 trading applications, corporate name changes, reverse and forward splits, changes of domicile and other transactions. The firm represents clients in London, Dubai, India, Germany, India, France, Israel, Canada and throughout the U.S.

How Does My Company Go Public? Going Public Attorneys

Friday, August 3, 2018, 3:18 PM [General]
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Going public is a big step for any company.  The process of “going public” is complex and at times precarious. While going public offers many benefits it also comes with risks and quantities of regulations with which issuers must become familiar.  Despite the risks even in a down economy, the U.S. markets remain an attractive source of capital for issuers.   Going public is an intricate process, and it is important to have an experienced going public attorney to help your company navigate through the process and deal with the Securities & Exchange Commission the (“SEC”), Financial Regulatory Authority (“FINRA”) & Depository Trust Company (“DTC”).

Upon completion of a going public transaction, most companies are subject to the regulations that apply to public companies, including those of the Securities Act of 1933, as amended (the “Securities Act”) and Securities Exchange Act of 1934, as amended (the “Exchange Act”).  A going public securities attorney can guide the company through these regulations.

Q. What does it mean for a company to Go Public?

A. Going public often refers to the process of a company filing a registration statement with the SEC to register its securities and become an SEC reporting company.  Other times going public may mean the filing a Form 211 with FINRA to obtain a ticker symbol for quotation on the OTCMarkets OTC Pink Sheets without filing a registration statement with the SEC.

Q. Why do most companies Go Public?

A. Most companies go public to raise money.  It is much easier for a public company to locate capital than it is for a private company.  Funds raised in going public transactions can be used for working capital, research and development, retiring existing indebtedness, acquiring other companies or businesses or paying suppliers.

Q. What are other advantages of Going Public?

A. Numerous additional benefits come with public company status.  Among them are:

• Once a going public transaction is complete, the company will be able to use its common stock as a form of currency and as collateral for loans.

• Going public creates value for an issuer’s securities.  Going public also creates liquidity for existing and future investors, and provides an exit strategy for shareholders and/or investors.  Additionally, public company stockholders may be able to sell their shares or use them as collateral.

• Public companies have greater visibility than private companies.  It is easier to build recognition of a public company than a private one.  Publicly traded companies are often promoted and gain publicity from their status as a public company.  Further, the media has greater economic incentive to provide coverage of matters concerning public companies than private companies  because of the number of shareholders and investors seeking information about the company.

• Going public may allow a private company to attract more qualified employees and key personnel, such as officers and directors because it allows the company’s management and employees to share in its growth and success through stock options and other equity-based compensation.

• There is a certain amount of prestige associated with public company status or service to a public company.

Q. What are the disadvantages of Going Public?

A. The disadvantages to going public include:

•  Going public requires management to answer to shareholders and give up a certain amount of their control over company matters.

• Going public is expensive and staying public is expensive.  Legal, accounting and compliance costs are significant and these costs will have to be paid regardless of whether a company raises capital.

•  After a going public transaction, a newly public company will incur higher costs as a public company, including auditing and legal expenses and costs of compliance with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”).

• Public companies are subject to more scrutiny than private companies.  Once a company becomes public, certain information must be disclosed to the public, such as executive compensation, financial information, previous violations of the securities and other laws and material agreements must be disclosed.  Public companies operate under close scrutiny as well as oversight.

• SEC reporting companies must comply with reporting requirements under the Exchange Act as soon as their going public transaction is complete.  Complying with these reporting requirements is costly and time consuming for management.

• Going public also exposes the company and its management to liability for false or misleading statements in filings and reports filed with the SEC.

Q. What is the difference between filing a registration statement under the Securities Act and filing a registration statement under the Exchange Act in a Going Public transaction?

A. Filing a registration statement under the Securities Act registers an offering of securities.  Shares registered by the issuer or on behalf of  its selling shareholders who are not affiliates of the issuer generally are unrestricted securities.  Filing a registration statement under the Exchange Act registers a class of securities such as common stock. Registration under the Exchange Act does not register a securities offering and does not create unrestricted securities.

Q. What is a Direct Public Offering?

A. A direct public offering is an offering conducted by a company on its own behalf without an underwriter.

Q. Can a Direct Public Offering be used in a Going Public transaction?

A. Yes, direct public offerings are often used in conjunction with going public transactions.

Q. Do I have to file a registration statement with the SEC if I conduct a Direct Public Offering?

A. Not necessarily.  A direct public offering can be structured for a listing on the OTC Markets OTC Pink sheets and it can involve a private offering rather than an offering subject to an SEC registration statement.

Q. What is DTC eligibility & why does my company need to be DTC Eligible? 

A. The DTC serves as the only custodian of  securities for its participants, which include broker-dealers.  DTC is also the only securities settlement provider in the U.S.  If an issuer’s stock is DTC eligible, DTC will hold an inventory of free-trading street name shares on deposit.  These free-trading shares are also  known as the “public float.”  Without DTC eligibility shares can only be publicly traded if there is physical delivery of a stock certificate and payment between a buyer and seller.  Without DTC eligibility, it is almost impossible for a public company to establish an active trading market in its securities.

Q. What is a Reverse Merger ?

A. A reverse merger is a transaction in which a private company merges into or is acquired by an existing public company.

Q. Should I use a Reverse Merger in my Going Public Transaction?

A. Probably not.  Reverse mergers are often vehicles for fraud and new rules impact reverse merger transactions.  Most often if done properly, reverse mergers cost more and take longer than filing a registration statement with the SEC in a going public transaction.

Q. Why do some securities attorneys say I should use a Reverse Merger in my Going Public Transaction?

A. Often securities lawyers who recommend reverse mergers manufacture shells.  They make a substantial amount of money selling their own public shells.

Hamilton & Associates has extensive experience in all aspects of securities law and going public transactions including SEC registration statements on Form S-1, direct public offerings, domestic and international stock exchange listings and quotation on the OTC Markets.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit www.securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com


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